Saturday, November 14, 2009

Airport Developers: Niche Sector

All throughout history, those cities have flourished which serve as a gateway to countries. The era of colonization may be over but the adage still hold true. London,Paris and Mumbai are just few examples where cities which have ports nearby have flourished.
Airports are the new gateways to the world. Every big city in India has just 1 airport or maybe in future to have 2 airports. Airports require lots of land and its a monopoly business.
I took a look at the major airports in India. GMR Infra has Delhi and Hyderabad airports under its belt. GVK Power had Mumbai and now a 12 pc stake in Bangalore airport.
The benefit of these 4 airports is that more than half of the nation's air traffic passes through these airports.
How do these folks make money?
1. Landing charges for aircraft, passenger fees which passengers pay when they take off from the airport.
2. Ground handling and baggage charges.
3.Non-Aero streams like rentals from shops, beverages, ATMs, car hire and airport amenities.
World wide about 70 pc revenues come from non - aero streams.

These operators have the airports on lease for about 50-60 years. I am particularly excited about Bangalore and Hyd airport because they are far away from the main city and the developers get huge parcels of land around the airport to develop for commercial use.

Remember 50 years back when current airports were built they too were on the outskirts of the city but now have become central airports.

Airports fall into the category of businesses which have high entry barriers. This is because no 2 airports can be built within a radius of 200 kms and current developer has first right of refusal.

The Noida airport has not taken off because of this same fact. The Navi Mumbai airport also will remain just on paper. This is because I have visited the site and seen for myself that lot of mangroves will get destroyed if they build the airport. This is precisely the reason it is stuck with the Environmental Ministry.
Even if the permission is given tomorrow, it will take at least 5 years for the airport to be operational.

Its difficult to find new investment ideas every day. This is 1 opportunity in front of us.

Next is valuations. That is as per individual appetite. These are real long term buys with great gestation periods. Both GMR and GVK are in power generation as well which would be hived off as separate companies.

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